Downwards movement is showing increased momentum as expected.
The bullish Elliott wave count is invalidated.
Summary: A third wave down is still in the early stages. The first short term target for the middle of it to end is at 1,997. The second short term target is at 1,953. The mid term target is at 1,850.
To see how each of the bull and bear wave counts fit within a larger time frame see the Grand Supercycle Analysis.
To see last analysis of weekly and monthly charts click here.
If I was asked to pick a winner (which I am reluctant to do) I would say the bear wave count has a higher probability. It is better supported by regular technical analysis at the monthly chart level, it fits the Grand Supercycle analysis better, and it has overall the “right look”.
New updates to this analysis are in bold.
BULL ELLIOTT WAVE COUNT
DAILY CHART – COMBINATION OR FLAT
Cycle wave IV should exhibit alternation to cycle wave II.
Cycle wave II was a shallow 0.41 zigzag lasting three months. Cycle wave IV should exhibit alternation in structure and maybe also alternation in depth. Cycle wave IV may end when price comes to touch the lower edge of the teal channel which is drawn about super cycle wave V using Elliott’s technique (see this channel on weekly and monthly charts).
Cycle wave IV may end within the price range of the fourth wave of one lesser degree. Because of the good Fibonacci ratio for primary wave 3 and the perfect subdivisions within it, I am confident that primary wave 4 has its range from 1,730 to 1,647.
If a zigzag is complete at the last major low as labelled, then cycle wave IV may be unfolding as a flat, combination or triangle.
The wave count is changed today to again see primary wave B or X as a zigzag completed earlier. Primary wave C should subdivide as a five and primary wave Y should begin with a zigzag downwards. This downwards movement is either intermediate waves (1)-(2)-(3) of an impulse for primary wave C or minor waves A-B-C of a zigzag for intermediate wave (A). Both these ideas need to see a five down complete towards the target, so at this stage there is no divergence in expectations regarding targets or direction.
Primary wave A or W lasted three months. Primary wave Y or C may be expected to also last about three months.
Within the new downwards wave of primary wave C or Y, a first and second wave, or A and B wave, is now complete. Intermediate wave (2) or minor wave B lasted a Fibonacci 13 days exactly. At 1,850 intermediate wave (3) or minor wave C would reach 2.618 the length of intermediate wave (1). At this stage, this will be the sole target for this third (or C) wave to end as it fits better with more short term targets calculated at the hourly chart level.
No second wave correction may move beyond the start above 2,104.27 within intermediate wave (3) or minor wave C.
DAILY CHART – TRIANGLE
Cycle wave IV may unfold as a shallow triangle. This would provide alternation with the 0.41 zigzag of cycle wave II.
Primary wave B may be a complete zigzag. Primary wave C downwards may be underway and within it intermediate waves (A) and (B) are complete. No second wave correction may move beyond its start above 2,104.27 within intermediate wave (C).
The whole structure moves sideways in an ever decreasing range. The purpose of triangles is to take up time and move price sideways. A possible time expectation for this idea may be a total Fibonacci eight or thirteen months, with thirteen more likely. So far cycle wave IV has lasted six months.
Both hourly wave counts will be the same today. The structure downwards for both is expected to be an impulse, which is incomplete.
An interruption to the downwards trend is not expected to show up at the daily chart level until subminuette wave iii is complete. Subminuette wave ii shows up on the daily chart as one green candlestick, so subminuette wave iv may also show up on the daily chart as one or more green candlesticks or doji.
At 1,997 subminuette wave iii would reach 1.618 the length of subminuette wave i. If price falls through this first target, of if it gets there and the structure is incomplete, then the next target is at 1,953 where subminuette wave iii would reach 2.618 the length of subminuette wave i.
The next Fibonacci ratio in the sequence is 4.236. This gives a target at 1,882.
A further increase in downwards momentum is expected.
The orange channel is a base channel about subminuette waves i and ii. It is being breached by downwards movement. Price should now find resistance about the lower edge of that channel.
The pink channel is an acceleration channel about minute waves i and ii. Keep redrawing the channel as price makes new lows. When minute wave iii is complete, the upper edge should provide resistance for minute wave iv.
If micro wave 2 continues any further, it may not move beyond the start of micro wave 1 above 2,967.65. This is the risk with this wave count at this time.
BEAR ELLIOTT WAVE COUNT
This bear wave count has a better fit at Grand Super Cycle degree and is better supported by regular technical analysis at the monthly chart level. But it is a huge call to make, so I present it second, after a more bullish wave count, and until all other options have been eliminated.
There are two ideas presented in this chart: a huge flat correction or a double flat / double combination. The huge flat is more likely. They more commonly have deep B waves than combinations have deep X waves (in my experience).
A huge flat correction would be labelled super cycle (a)-(b)-(c). It now expects a huge super cycle wave (c) to move substantially below the end of (a) at 666.79. C waves can behave like third waves. This idea expects a devastating bear market, and a huge crash to be much bigger than the last two bear markets on the monthly bear chart.
The second idea is a combination which would be labelled super cycle (w)-(x)-(y). The second structure for super cycle wave (y) would be a huge sideways repeat of super cycle wave (a) for a double flat, or a quicker zigzag for a double combination. It is also possible (least likely) that price could drift sideways in big movements for over 10 years for a huge triangle for super cycle wave (y).
The downwards movement labelled intermediate wave (1) looks like a five. If minor wave 2 is seen as a double zigzag with a triangle for wave X within it, then the subdivisions all fit nicely.
Ratios within intermediate wave (1) are: minor wave 3 is 7.13 points short of 6.854 the length of minor wave 1, and minor wave 5 is just 2.81 points longer than 0.618 the length of minor wave 3. These excellent Fibonacci ratios add some support to this wave count.
Intermediate wave (2) was a very deep 0.93 zigzag (it will also subdivide as a double zigzag). Because intermediate wave (2) was so deep the best Fibonacci ratio to apply for the target of intermediate wave (3) is 2.618 which gives a target at 1,428. If intermediate wave (3) ends below this target, then the degree of labelling within this downwards movement may be moved up one degree; this may be primary wave 3 now unfolding and in its early stages.
Within intermediate wave (3), minor waves 1 and 2 are complete. The upwards movement for minor wave 2 does have a strong three wave look to it at the daily chart level. Minor wave 2 was another deep correction at 0.87 of minor wave 1. At 1,850 minor wave 3 would reach 2.618 the length of minor wave 1.
It is still possible (but still less likely) that primary wave 1 is unfolding as a leading diagonal. I will keep that chart up to date and will publish it if and when it begins to diverge from the idea presented here. For now I want to keep the number of charts published more manageable.
The cyan trend line is very likely to provide some support for price along the way down. I would expect a bounce when price meets this line, even if only intraday. This may now be met on Monday about 1,997, which fits nicely with the first short term target at the hourly chart level.
At the hourly chart level both bull and bear wave counts are the same today.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Daily: Price has closed below the purple horizontal trend line at 2,020 which previously provided support (this line did provide some support intraday but was quickly broken through). Friday’s downwards day comes on an increase in volume. The fall in price was supported by volume.
Upwards movement may now find resistance at the trend line just broken through, if price throws back. This may not happen, but if it does it would provide an excellent opportunity to join the trend at an excellent price.
The next line of support is drawn about 1,990.
ADX and ATR both agree there is a trend. The trend is down.
The cyan trend line on On Balance Volume is adjusted. OBV has breached that line which then provided resistance. If OBV turns up again, that line should again provide resistance. OBV is a reliable leading indicator and has been persistently bearish of late.
RSI is not yet oversold. There is still plenty of room for this market to fall.
Stochastics is oversold, but during a trending market this can remain extreme for reasonable periods of time. There is slight bullish divergence between the lows of Friday and the prior swing low of 16th November. Price has made a lower low but Stochastics has made a higher low. This is a weak signal (I have learned the hard way to not give it too much weight). But it is bullish, and it is the only bullish indication I can see at this time from this chart.
For the bear wave count I am waiting for Dow Theory to confirm a market crash. I am choosing to use the S&P500, Dow Industrials, Dow Transportations, Nasdaq and I’ll add the Russell 2000 index. Major swing lows are noted below. So far the Industrials, Transportations and Russell 2000 have made new major swing lows. None of these indices have made new highs.
At this stage if the S&P500 and Nasdaq also make new major swing lows then Dow Theory would confirm a major new bear market. At that stage my only wave count would be the bear wave count.
DJT: 7,700.49 – this price point was breached.
DJIA: 15,855.12 – this price point was breached.
Russell 2000: 1,343.51 – this price point was breached.
This analysis is published about 03:21 p.m. EST on 12th December, 2015.